Corporate Governance - protecting and balancing stakeholder interests
Sky rocketing executive compensation, corporate scandals, financial crises - who controls those in control? The separation of ownership (equity investment) and control (management) that we observe in listed stock companies earned from the very beginning and for a long time strong distrust from economists. Adam Smith (1775) concludes that where managers other than owners control resources “negligence and profusion must ... always prevail.” Schumpeter (1942) saw in the rise of managerial capitalism even a transition phase to socialism: "The capitalist process, by substituting a mere parcel of shares for the walls of and the machines in a factory, takes the life out of the idea of property."
It was only in the 1970's with the rise of property rights and agency theory that economists took a less fundamental, more pragmatic approach. It is now common understanding that stock markets are important, that good corporate governance is needed to ensure their functionning, but that even the "best" governance institutions and mechanisms are not perfect.
The problem of control is closely linked to the question of to whom managers are responsible. Should they solely be judged by the value they create for shareholders or should an evaluation of their performance also include such goals as employment stability or sustainability? The question is not only a theoretical one. In many countries, strict employment protection precludes short term profit maximization. And all global companies are today rated with regard to their contribution to not only economic, but also social and ecological goals (see the page on CSR).
These and other questions are introduced in more detail under the topics listed on the left.
The focus of my research is on international comparisons, mainly looking at Japan, Germany and the US. You find details under the topic "International".
As with my research on the Japanese economy, I also see corporate governance as a system. The elements are not limited to company law statutes, corporate charters, general shareholder meetings, boards, compensation rules, reporting and internal control structures.They also include the broader financial system, the employment system and competition in product markets.
This naturally leads one to consider system complementarities, like the link between employment systems, corporate finance and corporate governance. I explored this specific link in two papers - one focussing on Japan and Germany ("From Corporatist to Market Capitalism? Japanese and German Systems of Corporate Governance Facing a Changing Environment", 2000), the other performing a simple correlation analysis across OECD member states ("The Link between Employment and Finance", 2003).
System complementarities creat path dependencies. We should therefore not expect the different national governance frameworks to converge to a single global standard.
Teaching and lectures
I teach Corporate Governance to graduate, PhD and MBA students in Munich, Lyon and Tokyo and give lectures on the topic for other audiences.